Now that you’ve calculated our net worth, you’re probably excited about seeing that number go up, and once it starts going up, you’re going to want to see it keep going up, faster and faster, rocketing to the moon. For my net worth growth, I have a thumbnail goal of a 2% increase per month in the coming year, which amounts to a 29.4% increase over the course of the year.
Here are the ten methods I plan to use to increase the velocity of my net worth growth. I recommend focusing for a while on each item before moving onto the next one.
1. Pay off all debts, starting with high interest ones
I started doing this during the past year by paying off all of my credit cards and eliminating my truck loan. Right now, I’m focusing in on the smaller of my two student loans, which I hope to wipe away by mid-2007.
2. Maximize employee matching of retirement investments
You should claim every single extra dollar that your employer offers you as a matching amount in your retirement account. If you don’t, you’re basically telling your employer to keep part of your salary and actively choosing to stunt your net worth growth.
3. Max out a Roth IRA
A Roth IRA is an unbelievably good way to shelter some money for retirement. You can contribute up to $4,000 a year, you can withdraw what you contributed at any time, and when you retire, you can withdraw your earnings tax free. It’s a complete gravy train.
4. Trim expenses
The key here is to eliminate “bad” expenses: ones that don’t do anything to increase your net worth. For example, dining out is almost always a bad expense, as is extra clothes shopping and almost every electronics purchase. Cut out these extra expenses from your life and suddenly the margin between your income and your expenditures becomes a whole lot fatter. That margin is your net worth growth, and you just made it bigger.
5. Keep money you’re not spending in a place where it earns
Your savings account should be earning a bare minimum of 4.5% APY. If you’re not earning more than that, you’re denying yourself some automatic net worth growth. Also, you should find out if you’re eligible for a high-interest checking account, like the upcoming ING Electric Orange checking, which offers a 3.0% APY on your checking balance.
6. Start a portfolio
Once you’ve built up an emergency fund, you should consider starting an investment portfolio. Once you begin to accumulate a lot of money in savings, investing is the next logical step for helping your money grow.
7. Reinvest income from investments
Once you begin investing, you’ll find that you may receive income from these investments, such as dividends. Instead of pocketing that money, roll it back into the investment until you have a real reason to take it out. It’s just more net worth growth acceleration.
8. Invest all windfalls
If you suddenly get a windfall due to an unexpected gift or an inheritance, don’t think about buying a flat panel television or a swimming pool. Invest that money as soon as you can. You can start buying such perks when your net worth is growing at a rapid pace by itself. I like the campfire analogy: if you’re trying to start a campfire and someone hands you some wood, are you going to use it to build the fire or are you going to whittle yourself a new toy?
9. Buy only late model used cars
Late-model used cars, ones that just finished out their leases, are the best deal on an auto lot. Buy one and drive it until it’s about ready to fall apart, then trade it in for another one. But don’t forget the tenth suggestion…
10. Pay for things only in cash
If you can’t get your hands on the cash to buy something, wait until you can. This includes everything short of a new home, including automobiles. The only auto loan you should ever take out is your first one.
If you follow these rules, you’ll watch your net worth slowly begin to accelerate and take off like a jet going down the runway and lifting into the air.